Professional Documents
Culture Documents
CIO losses
Assisted by outside counsel
Comprehensive fact-gathering effort Conducted numerous interviews with JPMC personnel, including Firm
Management, CIO Management, other CIO personnel, Risk and other corporate functions
Reviewed emails and other documentary materials
Summary observations
Portfolio
4 Risk limits for CIO were not sufficiently granular
inadequate
CIO TASK FORCE UPDATE
Historical context
Facts
Management
Complexity:
2x
3x
Dec 30
Mar 30
3x
CIO TASK FORCE UPDATE
Dec 30
Certain CIO-level risk limits exceeded during 1Q12 Related to credit spread widening Addressed within CIO
temporary increase of firmwide VaR limit in anticipation of lower VaR from new CIO Synthetic Credit model
February CIO Business Review with Firm Management Limited discussion of Synthetic Credit Portfolio CIO indicated that portfolio was well-positioned and RWA reduction was on
track
CIO TASK FORCE UPDATE
Vast majority of positions accumulated by March 23 CIO Management directed curtailment of trading on March 23
6
Losses increased in late March Heightened external market visibility of CIO positions including news
bias to the positive end) and potential for greater gains or losses in extreme scenarios
CIO Management expressed firm belief that market visibility had
commentary
Management
Senior Corporate Risk Management team began on site, bottom-up
on April 30
Early May: VaR model analyzed and implementation errors detected; previous model
reinstated
10Q filed on May 10 with disclosure pertaining to CIO trading losses;
Observations
CIO judgment, execution and 1
Trading approach was poorly designed, vetted and executed Poor trading judgment in 1Q12 CIO Management did not set clear objectives, properly vet the trading
10
Level of scrutiny did not evolve commensurate with increasing complexity of CIO activities
Observations
investment portfolio
Track record of CIO unit
Synthetic Credit Portfolio produced positive results from 2007 to 2011
facing businesses
11
CIO Risk Management was ineffective in dealing with Synthetic Credit Portfolio
Observations
CIO Risk Management group faced challenges Transitions in key roles and lack of adequate resources Lack of robust Risk Committee structure
Nonetheless, CIO Risk Management failed to meet expectations Inadequacy of risk limits should have been addressed in a timely manner Insufficient engagement in VaR model implementation Not forceful in challenging front office Insufficient escalation to Firm Management
12
No specific risk limits for Synthetic Credit Portfolio Portfolio was subsumed within more aggregated CIO limits
No limits by size, asset type or risk factor for Synthetic Credit Portfolio
13
Between August and November 2011, CIO developed a new Synthetic Credit VaR
operational environment
CIO TASK FORCE UPDATE
Remedial Actions
CIO leadership, governance,
addressed
CIO Risk Management
strengthened
Risk committees enhanced Ensured granular market risk limits
sufficiently granular
Approval and implementation of 5
firmwide
Model development and
governance strengthened
15
Team
Established stronger linkages across regional CIOs Enhancing talent and resourcing of key support functions Instituted robust committees to improve governance and controls (weekly
Investment Committee, monthly Business Control Committee, monthly CIO Valuation Governance Forum) Governance
Restructured governance to ensure tight linkages between CIO, Corporate
Mandate
Support other firmwide needs such as hedging currency and capital exposures
16
Added resources and talent in CIO Risk Modified market risk reporting to best practice levels
Risk governance
Detailed portfolio reviews conducted for sub-portfolios in CIO Enhanced firmwide oversight
Introduced granular limits across CIO Reaffirmed market risk limits and thresholds across Firm
CIO TASK FORCE UPDATE
Risk limits
17
LOB responsibilities to include: Conducting independent tests of models Ensuring robust operational environment
CIO TASK FORCE UPDATE
Line of Business
Regular post-implementation monitoring Remediation of action plans proposed by MRG Risk-based model approval hierarchy including escalation to LOB Risk
Committees
18
place
Affirmed appropriateness of risk
all LOBs
Management focus on risks taken in client-facing business has been, and continues to be, rigorous
19
Q&A
20
within pre-established thresholds that considered market bid/offer spreads; marks outside those thresholds were adjusted
Management review has recently identified concerns around the integrity of traders marks Emails, voice tapes and other documents, supplemented by interviews, suggestive of trader intent
considerations
Management has concluded that a material weakness in the CIO valuation controls over the
21
To date, all CIO managers based in London with responsibility for Synthetic
22
clawbacks, if appropriate, will be determined in the ordinary course considering, among other things, the following factors:
Company, unit and individual performance both on absolute and relative
basis
Achievement of non-financial objectives Involvement in and responsibility for CIO matter Made public as required
23